Question

Is it possible for a monkey to create a 10-year portfolio return that exceeds the market rate of return? Explain.

Is a portfolio return in excess of the market rate a signal of successful portfolio management? Explain.

Answer 1

Yes it is very possible for a monkey to create a 10-year portfolio return that exceeds the market rate of return. given to take any 30 stocks out of 1000 stocks that exist in the market it is quite possible for a persom to select random stocks from small medium and large cap. large cap stocks tend to provide lesser returns and are lesser in quantity.

however, small and mid cap stocks are large in number and hence possibility of hitting them are higher. also they work more on debt than equity and hence tend to provide better returns to investors after paying the high interest amount. these stocks provide a greater return than the market return overall and the only possibility of getting an lower return than market is in the case of large cap. Hnece in a case of monkey creating a portfolio will generate higher return is high.

also over 10 years all stocks tend to earn more than the market. in a study regarding monkey throwing darts 98 out of 100 monkeys out performed the expectations. and hence in this case as well the monkey is expected to outperform the market.

no a portfolio return in excess of the market rate is not a signal of successful portfolio management.as explained above anyone can create a sucessful portfolio generating more than market returns in a span of 10 years.hence not in all circumstances an portflio earning excess of market is a sucessful one.